(Bloomberg) -- A new budget-cutting deal House Speaker Kevin McCarthy struck with ultra-conservative rebels risks a standoff with President Joe Biden and congressional Democrats and a US government shutdown in October.
Faced with a rebellion on his right flank, McCarthy agreed this week to push through the House spending cuts $120 billion deeper than caps set barely two weeks ago. The spending caps were the centerpiece of a hard-fought compromise the GOP leader reached with the White House to avert a catastrophic debt default.
Democrats balked at McCarthy’s move to abandon the deal.
“If we disregard the law of the land, we all but guarantee a government shutdown,” Representative Rosa DeLauro, the top Democrat on the Appropriations Committee, said.
The $120 billion cut proposed by Republicans would slightly slow the economy in a period when it’s already vulnerable, modestly increasing the risk that it tips into recession.
A $120 billion spending cut in fiscal 2024 — from Oct. 1 to Sept. 30, 2024 — would shave 0.1% off US economic growth in 2023 and 0.25% off growth in 2024, estimated Bloomberg’s chief US economist Anna Wong.
GOP Plan
House Appropriations Chairwoman Kay Granger on Monday defended McCarthy’s agreement with conservatives, saying the debt deal set “a ceiling, not a floor” for spending. McCarthy told reporters he always planned to pass spending bills below the caps in the debt deal.
The House GOP plan would fund discretionary government accounts at $1.47 trillion next year rather than the $1.59 trillion in the debt deal, according to a copy of the plan.
The Departments of Labor, Education and Health and Human Services would be slashed by 29% in the Republican plan. The Transportation and Housing departments would be hit by a 25% cut.
Defense spending, which would see a 3% spending increase over current year levels, would be spared. That could ultimately mean a $150 billion cut to non-defense accounts.
“It’s shocking that it took less than two weeks for Republicans to walk away from an agreement they made,” House Democratic Caucus Chairman Pete Aguilar told reporters Tuesday. “If it wasn’t so dangerous, it would be laughable.”
House Republicans are also eyeing some controversial targets for cuts, including defunding the Justice Department’s investigation into former president Donald Trump. Trump is to be arraigned Tuesday on 37 federal counts pertaining to his mishandling of classified information.
“This will all come to a head in the appropriations process,” House Majority Leader Steve Scalise said.
McCarthy shrugged off any worries about the consequences of his new deal with conservatives. If the Senate can pass its own bills, he said, then both sides will work out their differences.
“You’ve got to be more positive,” McCarthy said.
Shalanda Young, the White House’s budget director, included in the debt deal a provision an automatic 1% cut to both defense and non-defense spending as a stick to force an agreement.
Now that the House has gone in a different direction there is added risk the cut goes into effect in January, to the horror of defense hawks and joy of many ultra conservatives.